CapitalMarket.com - Food Processing: Retain option to pay excise duty at 1% without Cenvat Credit
Pre Budget 2012-13 Thursday, March 15, 2012 18:06 Hrs IST
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PRE BUDGET REPORTS

Food Processing: Retain option to pay excise duty at 1% without Cenvat Credit

India is the second largest producer of food and holds the potential to be the biggest on global food and agriculture canvas, according to a Corporate Catalyst India (CCI) survey. The Indian food industry comprises of food production and the food processing industry. The food processing industry is one of the largest in India it is ranked fifth in terms of production, consumption, export and expected growth.

Also, India is set to witness the next revolution in the food processing industry, as the Centre has set an investment target of Rs 100000 crore (US$ 18.90 billion) by 2015 in the sector. The sector is expected to grow by 20 per cent and value addition to increase by 35 per cent by 2015. Further, The Government emphasis is on improving supply chain, by creating large primary collection and distribution centers throughout the country involving private sector, in the 12th Five Year Plan (2012-17) period.

Budget Expectations:

  • The Central Government has given excise concessions on large number of food products and many items attract duty of 5%. Even though in the budget 2011, excise duty on number of food products was increased from NIL to 5%, option was given to pay 1% excise duty without availment of CENVAT credit. This facility needs to be continued.
  • Also, The high rate of excise duty of 10% on packing materials used for processed food adds to the cost resulting in increase in prices. Therefore the industry seeks reduction in excise duty from 10% to 5% on packaging materials used in the food industry such as printed laminates, pet jars and corrugated cartons needs consideration.
  • Currently on packaging drinking water, excise duty of 10% is levied. The packaged drinking water is a common man's product and ensures the basic need of hygiene and hydration of consumers. This product should be put in the NIL excise duty category but this would break the CENVAT chain and therefore excise duty be brought down to 5%.
  • Though most food products attract 5% excise duty, there are few items attracting excise duty of 10%. Such items are mainly those containing cocoa and instant coffee. This discrimination needs to be removed by reducing excise duty on all food products having 10% rate to 5%.
  • The most of the ready to serve beverages are subject to excise duty on MRP basis, iced tea still assessed to 10% excise duty on transaction value. This product may be included under section 4A of the Central Excise Act with abatement.

Recommendations:

  • Continue with the existing exemptions either in the form of NIL excise duty or 1% excise duty without CENVAT credit.
  • Reduce excise duty from 10% to 5% on packaging materials used by the food processing industry.
  • Reduce excise duty from 10% to 5% on packaged drinking water and processed food having excise duty of 10%.
  • Include iced tea under section 4A of the Central Excise Act for the purpose of valuation with abatement.

Scrip's to watch:

Hindustan Unilever, Nestle India, Marico, Britannia Industries, ITC

Outlook:

The Food processing industry is of enormous significance for India's development. Also, The food processing industry been identified by the Government as a priority industry in order to reduce the high wastage of farm produce in the country. However, The cumulative incidence of taxes along with increased transportation and distribution costs makes the processed food products more expensive. The greater thrust on agriculture sector will bestow double benefit of improving income in the rural hands, and improve productivity, which can contain the cost of inputs for the food-processing sector.

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